The Greatest Compounding Risk of All

February 1, 2009 • Daily Email Recap

Thanks to Felix Kloman for his role in stimulating this commentary by risk management consultant Bill Sharon. See Bill’s website at http://sorms.blogspot.com/2009/01/greatest-compounding-risk-of-all.html
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The Greatest Compounding Risk of All
Saturday, January 24, 2009

We are more comfortable with numbers than we are with emotions. We use numbers to ring fence those emotions and put them in a logical context; making sense gives us a feeling of security. In the collapsing economic system we use numbers to describe what is going on; emotion has only a vague role as in “restoring confidence” or “panic selling”. Yet in the crisis that threatens to overwhelm the issues in the financial markets, the challenges in delivering healthcare and rebuilding our infrastructure, even the viability of governments and nations, emotion rules and numbers don’t seem to matter.

There are too many of us on the planet. To be sure, there are some arguments about whether or not we have reached a population level that is ecologically unsustainable, but they are increasingly at the margins. On a global basis we have overshot “carrying capacity” – the ability of the earth to provide sustenance for the number of people who inhabit it. As with all compounding problems, this one is fairly recent in terms of human history and becoming more exacerbated with each passing day. To provide some perspective, the number of human beings reached its first billion in 1800. Since then we have added another 5.6 billion humans and the UN projects (we’ll get to the difference between a projection and a prediction in a moment) that by 2050 we will have reached 9.2 billion people. That’s roughly a 40% increase in a little more than four decades. The rate of increase is perhaps just as daunting as the overall number.

And yet we really don’t talk about this issue at all any more. There are some fundamental reasons for this and they seem to be more intractable than the obstacles that predominate the headlines these days.

First, the explosion in population is taking place in areas of the world that are either economically depressed or in the early stages of providing a better standard of living for the people who inhabit them. The more economically advanced countries actually are facing a population decline; a situation that is beginning to cause some consternation in terms of a dwindling tax base and the burden of entitlement programs for retirees. So we are faced with the proposition that the economically well off will be telling the less well-off how they should behave.

Second, there are religious strictures against the use of birth control in some major faiths and there are demands to increase the numbers of the faithful in others. Again economics seem to play a central role as these rules are often ignored in countries where people have a higher standard of living but the power of faith and its dictates are difficult to address.

Third, there seems to be a direct correlation between the educational level of women and their access to and understanding of family planning and population growth. Poorer countries tend to disenfranchise women; sometimes for cultural reasons, sometimes for religious reasons.

There has been a reluctance to address these issues over the past decade because of the discomfort and, yes, political correctness. A few alternate ideas have been proposed, but they don’t seem to survive much scrutiny.

There has been some discussion in environmental circles that the solution to the problem is not to control population but to curb consumption. This argument has a certain appeal in an atmosphere where we are all feeling guilty about the consumerism that has contributed to our massive debt levels until you begin to look at the details. In order for us to consume at a level that would get us down to the upper limits of sustainability we would have to descend to the same level as the citizens of Botswana or Uzbekistan. At the projected rate of growth in 2050 that would drop to the level consumed in Nigeria.
Calculating the economic disruption that would take place should this approach even be attempted is essentially impossible; suffice it to say that it would be worse than even Nouriel Roubini could imagine.

Public policy efforts such as those in China are often met with objections by human rights activists. We don’t like the idea of the state mandating the size of families. Some of us have also adopted the position that any interference with a woman’s right to conceive is an attack on fundamental freedoms.

But back to those UN projections for a moment. These numbers are developed using formulas that look at past events and project them into the future – sort of like the calculations that brought us mortgage backed securities and credit default swaps. They don’t take into account serious ecological and/or pandemic events that could result from overpopulation. They are at best an indicator of one of the many scenarios that could happen over the next 40 years.
Many in the economically advanced countries may want to ignore the problem given that their population numbers present a different problem and there are so many other issues that seem much more pressing, But if we have learned anything in the past year it is that the connectivity that we have built makes it impossible to ignore problems based on distance. Our financial systems connect us in ways that most of us weren’t aware of. Our economies are inextricably linked with many of the raw materials necessary for economic activity coming from the less advantaged countries. Perhaps more important, from an enlightened self-interested point of view, we have transferred a good deal of our back offices and software development to parts of the world where population growth is a serious problem.

During the month of February a large and growing group of scientists from around the world have agreed to speak out on the population problem in a variety of forums. This commitment, managed under the umbrella of Global Population Speak Out (GPSO http://gpso.wordpress.com/ ) will provide a more in depth analysis of the problem and document some approaches that have had some success. We all need to listen.

I am indebted to John Feeney for much of the population information in this piece. For more information visit his website at: http://www.johnfeeney.net/

Posted by Bill Sharon at 8:51 am


Current World Population

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